BY THOMAS MULHOLLAND
Residential electricity aggregation programs are sold to the voting public on the appeal of personal cost savings. But aggregation offers a much more important public good: An increase in community prosperity through local job creation. Electricity aggregation has a tremendous job creation effect. Here’s why.
Northwestern Mutual published research stating that business investment is a healthier driver of economic growth than either consumer or government spending, and goes on to say that because the US economy is driven by consumer spending, GDP growth accelerates when consumer spending increases [Note the key words "business investment" in this sentence; we'll talk about that later]. The Economic Policy Institute’s Josh Bivens found that $115,000 in additional economic activity results in the creation of one new full-time-equivalent job (Bivens 2011).
Take a look at the impact of electricity aggregation programs on job creation using Illinois as an example. With a population of 11 million people, the state has approximately 5.4 million residential customers. I estimate that 4.4 million customers will shift from bundled retail electricity service formerly provided by investor-owned utilities to market-based electricity service brought about by aggregation programs. Only 9 months into implementation of aggregation in Illinois, EIA documented that 1.3 million customers already made the shift, not counting 1 million customers in the Chicago area that will switch in early 2013. That’s over 53% of the population in just a few months—a huge success.
Customers of aggregation programs save a lot of money. The Illinois Commerce Commission reports the average electricity rate as 4.5 cents per kWh. In comparison, the default rate from the Illinois Power Agency is currently 8.1 cents per kWh. It’s scheduled to drop on July 1, 2013, but is expected to remain above 6 cents per kWh.
Analyzing these data, residential electricity aggregation in Illinois pushed $433 million back into local communities in 2012. Considering voter initiatives approved in 2012 and slated for implementation in 2013, the cumulative increase in consumer spending at the local level will total approximately $900 million by year-end 2013, and is estimated to surpass $1.5 billion by year-end 2014.
Using Biven’s metrics, increased consumer spending driven by aggregation in Illinois created over 3,700 jobs in 2012, and will create over 13,000 jobs by the end of 2014. The US Bureau of Labor and Statistics published that Illinois added 41,900 jobs in 2012. Aggregation drove almost 10% of total job growth in the state.
Aggregation tackled the problem of creating energy savings for residential customers, and industrial customers have had market access for a number of years. Commercial customers are a gap in the market. They are the neglected child: Too small for direct sales initiatives and too big for aggregation, a large percentage remain with default (read: expensive) supply.
Returning to Northwestern’s comment above, cost savings for commercial customers translate directly into job creation and are more important to long-term growth sustainability than are increases in consumer spending.
Electricity aggregation is a huge success for residential electricity customers, increasing prosperity for Illinois communities. Now business customers can join the effort. To learn more, please read this article.